The risk of reclassifying a corporate office into an employment contract
Posted on 01/25/2021 by Sandrine Roubin
Individual and collective social rights
The principle of the ad nutum revocability of company directors is of public order and cannot be derogated from either by the articles of association or by any agreement whatsoever.
It is common for a corporate officer dismissed from his duties to seek to reclassify his corporate office as an employment contract in order to obtain full compensation in court to which the wrongfully dismissed employee would be entitled.
The stakes are far from neutral for the company with regard to the multiplicity of requests that may then be made (compensatory compensation for notice, the related paid leave compensation, legal or contractual compensation for paid leave attached to the period collaboration, compensation for dismissal without real and serious cause …).
What are the conditions required for such a requalification to be pronounced?
The burden of proof is on the person claiming the existence of a contract of employment.
Pursuant to the provisions of article L1221-1 of the labor code, an employment contract assumes the existence of a relationship of subordination between an employer and an employee, which is characterized by the performance of work under the authority of the employer, who has the power to give orders and directives, to control their execution and to sanction the breaches of his subordinate.
The judge is not bound by the qualification of corporate office adopted by the parties. Seized of an action to reclassify the corporate office as an employment contract, it must determine the de facto conditions under which the work was performed.
It should be noted that, by application of Articles 1353 of the Civil Code and L1221-1 of the Labor Code, the burden of proof of the relationship of subordination falls on the party claiming it, except when there is an apparent employment contract.
As proof of the employment contract is free, any material element can be retained as characterizing it (written employment contract, pay slips, work certificate, letter of dismissal, etc.).
It happens in this regard that the former corporate officer requesting the requalification seeks to take advantage of the delivery of payslips to claim the existence of such an apparent employment contract.
However, in order for the delivery of payslips to be considered as characterizing an apparent employment contract, it is still necessary that they are payslips containing all the employer and employee social contributions relating to the status of employee, including unemployment insurance contributions, and not simple pay slips relating to the remuneration paid to corporate officers.
More specifically, the remuneration of a corporate officer is subject to employee and employer social security contributions if he is assimilated to an employee for the application of social security legislation. In this case, it is mandatory to accompany the remittance of the remuneration with a written document showing its amount and its various components as well as the amount of withholding taxes, the CSG, the CRDS and the net taxable amount. It is customary for the company, for convenience, to duplicate the presentation on that of the employees’ pay slip.
In this logic, the Court of Cassation considers that the mere issuance of payslips to a corporate officer is insufficient to create the appearance of an employment contract (Cass. Soc., June 10, 2008, n ° 07-42.165; Cass. Soc., June 17, 2009, n ° 08-42.060; Cass. Soc., September 16, 2009, n ° 08-40.25).
This principle is constantly reiterated by the trial judges (for example: Douai Court of Appeal, December 22, 2017, No. 17/02463; Paris Court of Appeal, April 12, 2018, No. 17/13111 ; Orléans Court of Appeal, 8 November 2018, n ° 14/03512; Colmar Court of Appeal, 27 September 2019, n ° 19/00633). Let us specify as necessary that the mere mention of a “salary” cannot suffice to characterize the link of subordination (Lyon Court of Appeal, June 2, 2017, n ° 1600496).
Consequently and in the event of the issuance of bulletins relating to the remuneration of a corporate officer and not of an employee, there is no apparent employment contract and therefore no reversal of the burden of proof; it is then up to the person concerned to prove the link of subordination which would characterize, beyond the appearances created by the corporate office conferred, the existence of an employment contract.
The bond of subordination, a necessary condition for the characterization of an employment contract.
An employment relationship supposes three cumulative conditions, namely the existence of an effective activity, the payment of remuneration relating to this activity, and above all the performance of work in a situation of subordination, that is that is to say under the authority of an employer having the power to give directives, to control their execution and to sanction the breaches of his subordinate.
Being a corporate officer remunerated in this capacity, he can only be granted an employment contract if, at the same time as or on the occasion of this mandate, he exercises distinct technical functions, in a state of subordination to the society.
This is not the case with the CEO who manages the operational activities of the company, represents the latter in its relations with third parties, exercises his powers within the limits set in the articles of association, has the corporate signature, controls his working hours. and the organization of his working time and exercises his general management functions under the sole control of the board of directors or the supervisory board, without the Company’s power to impose sanctions against him.
Note in this regard that any agent must perform the contract by faithfully respecting the instructions given by the principal and their spirit, while respecting the trust of the principal.
Thus, the respect, by an agent, of the directives which are given to him by the principal in execution of the contract of mandate, in no way characterizes “The performance of work under the authority of an employer”.
The principal must, moreover, be able to assess the situation at any time with full knowledge of the facts, in particular in order to adapt his instructions, if necessary, to new elements.
It should be noted that under article L225-35 of the French Commercial Code, it is up to the board of directors to determine the orientations of the company’s activity and ensure their implementation, to take charge of any question concerning the smooth running of the company and to regulate through its deliberations the matters which concern it. It therefore performs the controls and verifications it deems appropriate, the Chief Executive Officer being required to provide each director with all the documents and information necessary for the performance of his duties.
Likewise, in application of article L225-68 of the Commercial Code, the Supervisory Board exercises permanent control over the management of the company by the Management Board; at any time of the year, it carries out the checks and controls it deems appropriate and can obtain the documents it deems necessary for the accomplishment of its mission.
It is in application of these principles that the trial judges constantly reiterate that the relationship of subordination specific to the status of employee must not be confused with the directives that may be received by corporate officers from their principal and, in particular, the board of directors, the supervisory board and / or the main shareholder of the company (Court of Appeal, Douai, November 30, 2006, n ° 05/02361; Court of Appeal, Riom March 11 2014, n ° 12/00522).
It is in the light of these developments that a company which is the subject of an action for requalification will usefully assess the risk inherent in this action.
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